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Wednesday, August 17, 2011

92% of Foreclosures in New York Lack Proper Documents -- Banks Booting People Without Proof?

92% of Foreclosures in New York Lack Proper Documents -- Banks Booting People Without Proof?

There's a staggering amount of bad paperwork in citywide foreclosures -- not just in New York, but around the country.

August 15, 2011 |

Ninety-two percent.

That's how many of the foreclosures on bankrupt families in and around New York City had no proof the creditors had the right to foreclose.

In a three-month investigation, the New York Post—a tabloid owned by Rupert Murdoch and usually better known for its salacious headlines than its investigative journalism—found that in nearly all of the foreclosure proceedings, “banks have attempted to steamroll their way over sometimes-outgunned homeowners,” booting them out of their homes even if they didn't have proper documentation that gave them the right to do so.

The Post went through more than 150 Chapter 13 bankruptcy filings from June of last year, pulled a random sample, and:

“...unearthed claims riddled with robosigners, suspicious documents and outrageous fees. And in a stunning 37 out of 40 cases, The Post discovered a broken chain of title from the original lender to the company now making claim against a local family for its home and thousands of dollars in questionable fees.

In other words, the bank or mortgage servicer filing the claim failed to prove it has any right at all to make a claim it was owed the debt or that it could seize the home in question.”

And it's not just New Yorkers who are still struggling.

Eighty-seven-year-old Margery Gunter, of Immokalee, Florida, who has lived in her home for 40 years, is on the verge of losing it to foreclosure by OneWest Bank, Reuters reported last month in an investigation into the continuing problems with mortgage documents. "If they take the house," she told Reuters reporter Scot J. Paltrow, "they'll take me, too."

Paltrow reviewed records in five states -- Florida, Massachusetts, New York, and North and South Carolina -- and pointed out that despite a settlement in March with 14 major loan servicers (banks or other companies that perform the tasks such as collecting payments from borrowers or filing foreclosures even if the loan itself has been repackaged and sold), at least five of those servicers have filed “questionable” paperwork in recent months. Those five, OneWest, Bank of America, HSBC Bank USA, Wells Fargo and GMAC Mortgage, denied wrongdoing to Reuters, and said they have “revised” their practices since 2010's robo-signing scandal.

The housing crisis has been at the heart of the U.S.'s economic problems for the last five years; the Los Angeles Times noted this weekend that more than three million Americans had lost their homes and millions more continue to be at risk.

The problem stemmed from the way mortgage loans were repackaged into securities and sold to investors (including public pension funds; it's not just those with enough cash to gamble on the stock market who took a hit). The bank issuing the mortgage no longer had the incentive to make sure they'd be paid back, as they were making their money by selling securities rather than the simple interest on the mortgage. The incentive then became to sell more mortgages: since home-buying isn't like buying shoes or coffee, you have to find new customers. Those new customers came in the form of more financially unstable borrowers, and the loans they were sold often had to rely on some tricks to get them into houses in the first place.

Schneiderman's intervention into Bank of America and Bank Of New York Mellon's settlement is the biggest move yet by a U.S. politician toward holding banks accountable for their unethical dealings. David Dayen at FireDogLake noted:

“Rather than let the banks off the hook and tell them to do right next time, Schneiderman’s order details how the banks committed widespread fraud (that’s actually his term in this case) against investors and homeowners. Down the road, maybe this leads to a settlement. But it would be an informed settlement, which has done the work and documented the fraud, one that would extract the proper amounts and penalties from the offender. And Schneiderman is using state statutes that could easily carry criminal penalties as well.”

Among those criminal penalties: the Sarbanes-Oxley Act considers filing false documents in a bankruptcy case, including foreclosures, a crime punishable by up to 20 years in prison. Preparing fraudulent documents, Reuters pointed out, can be prosecuted under federal mail fraud statutes.

The housing crisis has been at the heart of the U.S.'s economic problems for the last five years; the Los Angeles Times noted this weekend that more than three million Americans had lost their homes and millions more continue to be at risk

.

The problem stemmed from the way mortgage loans were repackaged into securities and sold to investors (including public pension funds; it's not just those with enough cash to gamble on the stock market who took a hit). The bank issuing the mortgage no longer had the incentive to make sure they'd be paid back, as they were making their money by selling securities rather than the simple interest on the mortgage. The incentive then became to sell more mortgages: since home-buying isn't like buying shoes or coffee, you have to find new customers. Those new customers came in the form of more financially unstable borrowers, and the loans they were sold often had to rely on some tricks to get them into houses in the first place.

So loans designed to keep payments low for a couple of years and then shoot upward, predatory targeting of low-income people and people of color, and other shady practices became commonplace, as the industry trawled for more mortgages to sell at a profit. And the mortgages were repackaged and resold, Kai Wright wrote in the Nation, with such breathtaking speed that "everybody involved in the securities process had cut so many corners in pursuit of record profits, had operated with such disregard for the many steps that ensure a safe and sound mortgage market, that they couldn't even show who owned the debt.”

Robosigning, a practice that came to light back in 2010, continues to be a huge problem in foreclosure cases like the ones the Post found, not just in New York but around the country. Robosigners are individuals at banks whose signatures turned up on thousands of foreclosure documents, in some cases prompting questions of whether multiple people were signing under the same name. When the news hit that banks were fast-tracking foreclosures without proper attention to documents, big banks, including Bank of America, temporarily halted their foreclosure proceedings—but have started them up again, apparently without any major changes in procedure.

Some of the problems the New York Post found include missing or questionable endorsements of notes, mortgage assignments by companies that were no longer in existence at the date of the assignment, proof-of-claim filings without legal documentation of the servicer's right to do so, assignments created after the debtor filed for bankruptcy (which is illegal) and of course, robosigning.

With so many problems found so easily, it might appear that borrowers at risk of foreclosure would have a strong case for fighting back. But families facing foreclosure have few options for fighting back; no money and little access to legal support. Yves Smith noted in the Post, "

While the economy continues to rest on houses of cards like these mortgage-backed securities, we are all at risk. But these families manipulated by lenders hunting for ever more loans to turn into profits aren't just losing money, they're losing their homes. And while keeping people in their homes is actually beneficial even to the banks, let alone the families and the larger economy, as Michael Hiltzik at the Los Angeles Times wrote, voluntary efforts to modify loans to keep people out of foreclosure “haven't helped more than a handful of affected borrowers.”

Without a fight on their behalf by attorneys general like Schneiderman, homeowners like Margery Gunter, like those 92 percent of New York area families dealing with bankruptcy, have no support. They're left on their own, forced to find an individual response to a systemic problem, at the mercy of the big banks.

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